Deal Diary

On June 21, 2021, the U.S. Supreme Court issued its opinion in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System,¹ vacating the 2nd Circuit’s previous decision and remanding for further consideration as to whether Goldman Sachs rebutted the fraud-on-the-market presumption of reliance by a preponderance of the evidence. Relying on the presumption of reliance established in Basic,² respondent shareholders (“Plaintiffs”) had alleged that Goldman Sachs made material misrepresentations that allowed it to maintain an artificially inflated stock price. Plaintiffs’ claims arose from generic statements that Goldman Sachs released in which it claimed that it had a system in place to resolve conflicts of interest. After Goldman Sachs issued the generic statements, it became public knowledge that Goldman Sachs did not, in fact, adequately resolve a conflict of interest. Shortly thereafter, Goldman Sachs’s stock price dropped.

On March 29, 2021, the U.S. Supreme Court heard oral argument in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System.¹ In this closely watched case, the Court is expected to clarify the evidentiary burden for rebutting the “fraud on the market” presumption of reliance at the class certification stage in securities fraud class actions.

Akin Gump litigation partner Michelle Reed and counsel Matthew Lloyd have published an article in Westlaw Securities Enforcement & Litigation Daily. The article notes that the increase in the number of federal securities class actions can be explained, in part, on the “apparent shift of merger and acquisitions suits from Delaware state court to federal court.” There is also another explanation, which they attribute to claims “filed in response to adverse company events such as a data security breach, sexual harassment allegations, a catastrophic explosion, allegations that a drug or product has side effects or caused injury, or a regulatory investigation or enforcement action.”

Disclosure Updates and Simplification and Regulations S-K and S-X

The SEC has adopted and proposed rule changes to reduce burdens on public companies and encourage broader securities ownership by “Main Street” investors. Among other things, the SEC has adopted significant revisions to the main body of corporate disclosure requirements under Regulation S-K and proposed revisions to simplify financial reporting in connection with debt financing transactions under Regulation S-X. In addition, the new Congress may continue recent legislative initiatives to simplify the burdens of being a public company.

Corporate Culture

The corporate culture of a company starts at the top, with the board of directors, and directors should be attuned not only to the company’s business, but also to its people and values across the company. Ongoing and thoughtful efforts to understand the company’s culture and address any issues will help the board prepare for possible crises, reduce potential liability and facilitate appropriate responses internally and externally.

This week we highlight a post by the Harvard Law School Forum on Corporate Governance and Financial Regulation by Akin Gump attorneys. This article discussed how Dell has been planning to eliminate its tracking stock (DVMT) through a merger with a wholly-owned subsidiary that would effectively convert the outstanding DVMT shares into a new class of publicly traded Dell common stock, and the reluctance of many DVMT stockholders to support the proposed exchange.

Akin Gump has issued an alert on the Delaware Court of Chancery’s decision that a buyer has the contractual right to terminate a merger based on a sudden and sustained decline in the seller’s business. The Delaware Court has made clear the decision was driven by facts, not legal innovation and that the decision provides guidance to both litigators and dealmakers for negotiation and interpretation of so-called “material adverse effect” clauses.

Click here to read the full alert.

On May 21, 2018, a closely divided United States Supreme Court held in Epic Systems Corp. v. Lewis that employers may require employees to resolve employment disputes with an employer through individual arbitration even if the arbitration agreements waive the right to proceed by class or collective action.